Spain is being forced to borrow from Europe to bailout its banks because markets won’t provide the money directly to Spain.
In so doing, the Spanish rescue may well suffer from the same fate as the three previous sovereign rescues. Because the bailout money takes on the position of preferred creditor, it subordinates other bondholders [maybe not, but to say this is complex is an understatement], thereby making it even harder to raise money from the capital markets.
Also stressed to virtual breaking point, Italy, becomes liable for some 17.9pc of the cross guarantees, raising the absurd spectacle of Italy borrowing at 5pc to lend to the Spanish banking system at 3pc. European solidarity may be a noble cause, but there must be limits.